Land barons acquire multiple negative-cashflow properties with hope of profiting from appreciation. It is a foolish investment strategy guaranteed to fail when the Ponzi Scheme implodes. Today we see the self-inflicted suffering of one failed land baron.
Today's featured property belongs to a knife catching squatter who managed to close on the day that marks the beginning of the credit crunch.
Irvine Home Address … 10 BLUEJAY Irvine, CA 92604
Resale Home Price …… $720,000
{book1}
Turn the key
Walk through the gate
The great ascent
To reach a higher state
A rite of passage
The final stage
A sacred home
Unlock the door
And lay the cornerstone
A rite of passage
Dream Theater — A Rite of Passage
A rite of passage is is a ritual event that marks a person's progress from one status to another. Foreclosure is a rite of passage. Bankruptcy is a rite of passage. Many view foreclosure and bankruptcy at the hell fires of destruction when in reality they are a cleansing baptism into a new life — a life unburdened by debt and obligation — at least for a while. Many return to their lives of sin and indebtedness.
Everyone facing the fire shudders at the prospect. Many people face their fears and walk through fire — I did it at a weekend retreat in August of 2007. The entire event happens in the first step; having the courage to face the fear of the unknown, the spectre of pain — facing those fears can allow you to do tremendous things.
Debtors who are hunkered down in their bunkers of entitlement are going to experience the purifying fire of foreclosure. They can either embrace this opportunity, or curse their bad fortune. Which attitude do you think will get them farther in life?
Some homeowners facing the prospect of repeated foreclosures
[Brenda Duchemin offers a small moment of comfort to her husband, Mohammad Ashraf, as he sorts through a maze of paperwork related to the foreclosure of their Diamond Bar home. > > > > Multimedia (Robert Gauthier / Los Angeles Times)]
Every morning at 6 a.m., Brenda Duchemin kneels down on two plush throw pillows in front of a carved teak shrine in her Diamond Bar home and chants.
In front of a cluster of oranges, a small teacup and a golden lotus flower on the shrine, the slight 53-year-old tries to expel the negative images: the two homes she and her husband, Mohammad Ashraf, lost to foreclosure auctions last month, the bankruptcy petition they were forced to file in 2009, and their ongoing battle to stay in their spacious and airy home, which is furnished with soft blankets, leather couches and Elvis commemorative plates on the walls.
Daily chanting helps her karma, Duchemin says, which is currently not in such a good state.
"We don't know what we did in a past life to bring this out," she said, a slight Boston accent tinting her speech. "I must have been a horrendous person down the line."
I think it is sad that she believes that. Her suffering has little to do with transgressions in her past life and much to do with her attachments to possessions and a lifestyle she cannot afford in this life. Her failure to realize this is causing self-recrimination in the wrong area.
Though signs of recovery in the housing market are emerging, thousands of people throughout the Southland are still in a precarious position on the brink of foreclosure, struggling with monthly bills and mortgage payments.
Duchemin and Ashraf are an extreme example because they've gone through foreclosures on two homes and are in danger of losing a third. They aren't alone: Flimsy lending practices mean that thousands of other borrowers face the prospect of repeated foreclosures, mortgage and foreclosure experts said.
… "It wasn't unusual to allow folks to buy not only two homes but three, four or five," said Sean O'Toole, founder of data-tracking firm ForeclosureRadar.
Because people thought the price of real estate would keep climbing, O'Toole said, they figured that the more homes they bought, the more they'd earn eventually.
"In a lot of cases, you had folks in this gold rush mentality: 'Real estate is going up, the more houses I buy, the more money I'll make.' "
Sean gets it. This is the second bubble he has cleaned up after.
Duchemin and Ashraf say they are anything but flippers. Had not both their health and the economy taken bad turns, they say, their finances would have been able to support their real estate investments.
Bullshit. Only continued appreciation and continued Ponzi Scheme borrowing based on that appreciation was going to sustain the empire they built. There actions, as revealed below, demonstrate that they were property flippers regardless of how they may view themselves.
The couple bought their Diamond Bar house for $550,000 in 2006, hoping to finance the purchase by selling their town home in Brea — a sale that never materialized, they say, because of the housing crash. The year before, they'd also bought a $340,000 home in Las Vegas as a retirement property, which they rented to a tenant until last year. At the time of the purchases, their only sources of income were workers' compensation insurance payments and Social Security, but that wasn't a problem for the lender.
Their health problems were an issue before they bought. How does the economy impact their income an ability to make payments? They were expecting the payment to come from borrowing against the properties themselves. That is the essence of a Ponzi Scheme.
"We don't know how much longer we can keep going," Duchemin said, stroking their white Maltipoo, Sugar, one of four dogs the couple keep segregated in various areas of their house because the pets fight.
Ashraf, a warehouse supervisor, was injured in 2003 and had to have three discs replaced in his back. The surgery went poorly: He was in the intensive care unit for six days and had a stroke during that time. He now takes fistfuls of medicine each day, and has been even more subdued since his father died in Pakistan in 2008.
Duchemin was hit by an 18-wheeler truck in 1994 and has suffered severe seizures since then, although she had a device inserted in her chest to stem the seizures.
Ashraf is just a shell of the man he once was, Duchemin says. "This is a man who took pride in supporting me, making me feel like I was a queen — he was one of the strongest men I ever met," said Duchemin, who has voluminous brown hair and carefully sculpted eyebrows. "To see him go from that to an invalid. . . . " she said, trailing off.
Before we turn on the water works, let's take a look at what is sad and what is not. It is very sad that this couple has had personal accidents and injuries that has left them unable to earn the same amounts after the accident. When this happens to people, unless they have sufficient disability insurance, they will experience a decline in their standard of living. They suffer to the degree they cannot accept their new life.
The drop in their standard of living should have occurred years ago. It would have been sad, but it would have been over, and it would not have made the LA Times. It would have been an ordinary and unceremonious fall from entitlement.
This couple cooked up a Ponzi Scheme that worked for a while. They believed they had secured a style of life that was, in fact, an illusion. That is not sad. That is foolishness. These people developed attachments to an illusion, and this attachment makes their pain more intense and creates unnecessary suffering. That is sad.
If these people had not been lead to believe they could save their home and have a prosperous retirement on the appreciation of three houses, they would not now be suffering the loss of that dream — a dream sold to them by greedy lenders, mortgage brokers and realtors. That isn't sad. That is wrong, and it makes me angry.
Three houses is certainly capable of providing a comfortable retirement. It is part of my plan, but I intend to own them with no debt and live off the cashflow. That works. Owning three houses and milking them for appreciation by adding debt; that is a Ponzi Scheme. That doesn't work.
Many people have sad stories, and some people have foolish stories; this story is both. We need to be able to separate the two, or we will learn the wrong lesson. These people embarked on a foolish investment strategy. Land Barons all implode in the end, not because the economy turns, but because the investment strategy is foolish and the bad economy exposes that fact.
Should we all share our personal heartbreaks? This couple's sad medical problems have nothing to do with their investment Ponzi Scheme. Should everyone who has a sufficiently sad story get a government handout for their foolish investments that fail? If you can't separate sad from foolish, you might support helping people like this sustain their unsustainable and entitled lives. This report was designed to generate that sympathy, but when you see the truth beneath the story, you realize these people do not need or deserve any bailout assistance.
Ashraf's workers' comp payments were cut in half in 2008, hampering the couple's ability to pay any of their three mortgages.
Duchemin, who has worked as a teacher's assistant, a marketer for a chiropractic office and a locksmith, among other things, started looking for work last year but hasn't had any luck. Now she's applying for jobs that a high school student would be overqualified for, she says.
She's tired of hearing people say the economic downturn is ending. "There is no recovery," she said.
Though they were heartened by the news that the government was trying to help homeowners, the couple doesn't have much hope for mortgage help. They informed Washington Mutual in March 2008 that they were in trouble and asked for a modification on the Diamond Bar home, but tried to pay the mortgages on all three of their houses, missing a payment here, a payment there.
They received an initial boost of denial from one of the various government bailout attempts — notice the reporter doesn't bother to mention which one because they are all the same — and now that the denial has worn off, they are back where they started.
They eventually lost the Brea town house and Las Vegas home to foreclosure, and both properties went up for auction last month.
Duchemin and Ashraf say they are doing everything they can to keep their Diamond Bar house.
They filed for bankruptcy protection in July in the hope that it would enable them to keep the house. They've been to the U.S. Bankruptcy Court in Los Angeles three times since October to get their bankruptcy confirmed, but each time a problem has arisen. The next date is Monday.
They have been getting advice on how to game the system and prolong the misery. Do you think they are being helped? I think they would have been better off walking away and declaring bankruptcy months ago because then it would be over. All they are accomplishing now is prolonging their own agony; they are going to lose everything. The denial of their fate is causing suffering as is waiting for the inevitable foreclosure. When it is over, they can end to their suffering and rebuild their lives. Only their attachments are causing them pain.
To keep making payments on their home, they sold their Toyota Tacoma and family jewelry, including a gold anchor necklace Ashraf had since he served in the merchant marine. They canceled every service they could except for the Internet, which allows Ashraf to keep in touch with his family in Pakistan.
Duchemin rides her bike everywhere to save money on gas — when she goes out. Mostly they stay at home, worrying that the water or electricity will be turned off soon.
If they are forced to move, the two don't know where they'll come up with a deposit for a new place — filing for bankruptcy has ruined their credit.
"We can't afford to stay in our home, but we can't afford to move," Duchemin said.
This is what we want people to do. This is what HAMP applicants are supposed to do but don't. These people have cut everything to the bone, and they still can't make it. That doesn't mean they should be bailed out of their foolish Ponzi Scheme at your expense, does it? 
Let's also remember their suffering is both self-created and relative to their level of entitlement. Others do not have it as good as they do.
They're entrenched for now: Board games are stacked up on tables, crystal figurines shine on display in a case, and the four bedrooms are packed full of stuff, including Duchemin's artwork and teddy bears bigger than a toddler.
But every day finds them on edge, waiting to see what happens next. They spend their days trying to appreciate the home they love, with its hand-laid brick walkway, fig and lemon trees in the yard and "Wizard of Oz" paintings on the walls, wondering what went wrong.
"I can't provide the way I used to provide everything for. . . . Excuse me," Ashraf said, breaking down. "For my family," he continued. "And I just — at this point, I don't know what I'm going to do."
It is not difficult to figure out what he is going to do. He is going to move out of his house into a rental and live within his means just like frugal and responsible people everywhere. He will abandon his dreams, and he will endure The Unceremonious Fall from Entitlement.
Is that sad?
I prefer to see these things from the perspective of a Phoenix, not the city, the mythical creature that rises from the ashes of destruction. Once this couple accepts their new lifestyle and standard of living, their suffering will stop, and their new lives will begin. It may not be the fairy tale they hoped for, but it is better than the nightmare they live today.
Today's featured property
Since I began writing for the IHB, I have advised people to rent, particularly in 2007 when there was no plausible scenario where people could benefit financially from owning real estate. Today's featured property was active in mid-2007, and one knife catcher picked the property up for $810,000.
Ordinarily, that would be an opportunity for me to say, "I was right, and the buyers were wrong," but this case is not so clear. Believe it or not, as late as 8 August 2007, lenders were underwriting 100% financing deals. This must have been one of the last because early August 2007 was when the credit crunch gripped mortgage lending. In short, these people bought at the worst possible time — or did they?
Since they did obtain the property with no money down, it was less expensive than moving into a rental. And since they quickly defaulted, and since they have been squatting in the property since they quit making payments in late 2008, their cost of housing has been much lower than mine during that time. And if I had been wrong and they had been right, they stood to make a fortune. Of course, now their credit is ruined, and they are facing foreclosure, but the squatting seems to go on with no end. 
Foreclosure Record
Recording Date: 07/24/2009
Document Type: Notice of Sale
Recording Date: 04/17/2009
Document Type: Notice of Default
Is frugality and self-restraint dead?
How do I advise people to do the right thing? I believe retiring debt is a positive, but the government goes out of its way to make debt positive — to the point of offering the possibility of free money through debt forgiveness. Is my advice old and outdated? Has the new permanent Ponzi Scheme mentality made my concern for the financial well-being of others quaint and endearing but not particularly helpful?
I am genuinely concerned about the system we are setting up. The incentives are all wrong. People are obtaining entitlements at the expense of others. People are gaming the system to stay in houses that do not rightfully belong to them. And the government has told our lenders this is OK because we will cover all the losses.
Perhaps it is better to game the system like everyone else? I would have enjoyed living in a nicer place rent-free for the last couple of years.
If 100% financing comes around again in the next cycle, it will be very tempting to take the money — and I am one of the people who think it's a bad idea. You know the spenders who don't care will be maxing out their HELOCs.
Our lenders are rightfully doomed, and we will pay dearly for the next bailout. Will you get your piece?
Irvine Home Address … 10 BLUEJAY Irvine, CA 92604 
Resale Home Price … $720,000
Home Purchase Price … $810,000
Home Purchase Date …. 8/8/2007
Net Gain (Loss) ………. $(133,200)
Percent Change ………. -11.1%
Annual Appreciation … -4.3%
Cost of Ownership
————————————————-
$720,000 ………. Asking Price
$144,000 ………. 20% Down Conventional
5.11% …………… Mortgage Interest Rate
$576,000 ………. 30-Year Mortgage
$150,956 ………. Income Requirement
$3,131 ………. Monthly Mortgage Payment
$624 ………. Property Tax
$0 ………. Special Taxes and Levies (Mello Roos)
$60 ………. Homeowners Insurance
$87 ………. Homeowners Association Fees
============================================
$3,902 ………. Monthly Cash Outlays
-$769 ………. Tax Savings (% of Interest and Property Tax)
-$678 ………. Equity Hidden in Payment
$289 ………. Lost Income to Down Payment (net of taxes)
$90 ………. Maintenance and Replacement Reserves
============================================
$2,833 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$7,200 ………. Furnishing and Move In @1%
$7,200 ………. Closing Costs @1%
$5,760 ………… Interest Points @1% of Loan
$144,000 ………. Down Payment
============================================
$164,160 ………. Total Cash Costs
$43,400 ………… Emergency Cash Reserves
============================================
$207,560 ………. Total Savings Needed
Property Details for 10 BLUEJAY Irvine, CA 92604
——————————————————————————
Beds: 4
Baths: 3 baths
Home size: 2,257 sq ft
($319 / sq ft)
Lot Size: 4,050 sq ft
Year Built: 1976
Days on Market: 139
MLS Number: S596056
Property Type: Single Family, Residential
Community: Woodbridge
Tract: Ck
——————————————————————————
According to the listing agent, this listing may be a pre-foreclosure or short sale.
This property is in backup or contingent offer status.
This is a must see now! Won't last long, very popular Woodbridge home. Motivated Sellers, Excellent value, priced to sell NOW! Elegant and Large 4BR home in Prestigious Woodbridge, with a Rose-Lined front yard, close to the lake, across the from the Park on a single loaded street. Very Quiet neighborhood, walking distance to all schools (award-winning Irvine Unified School District). Bright and spacious, vaulted ceiling, large family room plus living room. Mr. and Mrs. Clean live here! Big backyard, well maintained. Unique interior Patio, seen from different parts of the home. Schedule an appointment to see it now, it won't last long!
I am looking into Mr. Clean's toilet, and I am looking at Mr. Clean's toiletries.
Yesterday you wrote about how you might not have let go of the housing bubble, but the couple in the article are the type of people that more need to let go of the bubble mentality. It also needs to be mentioned the degree to which speculators bid up the prices of real estate – in 2005, 33% of all US purchases were non owner occupant, and lots of those used owner-occupant financing terms. In the bubble regions this was worse. I feel sorry for the health & income aspect of their situation, but not the housing part. They were part of the problem, and the problem is in the process of being fixed.
It seems like they might have been better off letting the house go and using savings to build up a little reserve for the move to a rental. Lots of people still see the problems in housing being falling prices, but they never acknowledge the problems that were caused by the rising prices. Identifying the real problem is important. Perhaps this couple’s problem is not that they are losing a home they should stay in, but that they are holding on to a home that they should let go.
This is a good point. Perhaps the daily chanting before the carved teak shrine ought to include some slogans like “must let go” “must stop be delusional” “must throw out this damned shrine and grow up”
This couple was well-chosen to generate sympathetic readers. His back injury sounds about as serious as they get. However, they perceive themselves as victims, when in reality they are the victimizers. They are the classic SoCal couple we all knew, who were flipping multiple houses and generating huge profits relative to their labor income.
Most IHB readers are the real victims. I want to read a story about the hard-working professional couple who refused to purchase in the early 2000s because they didn’t have 20% saved yet, only to watch prices get further and further out-of-reach. I want the media to report about how this couple continues to be victimized by people like the homedebtors in the article above and their own government.
Very well said Perspective. I will essentially never be able to buy a house, and I’m a goddamned lawyer making 6 figures. Here in the bay area, I can look forward to a middle unit townhouse in South San Jose for $600K because that’s the only thing I could save 20% of within a reasonable amount of time. $120K is a year’s salary for me, so saving that kind of money after rent + student loan payments + necessities/ obligations($4k/ month) I can save $120K in about 5 years. And that’s so I can get a middle unit townhouse in South San Jose and have a 75 minute commute to go 20 miles to work. Oh, and $300/ month in HOA.
es, one of the purposes of law school is to find a spouse so that you compound the salaries! That’s what I did. 😉
es,
Don’t lose heart. I personally know many who did it on half my salary. They all had one thing in common. They live under their means, but didn’t show it. Outlet clothing, discount food, used car, very limited eating out, no expensive vacations or other lavish expenses. Sharing an apartment and cooking until married.
Your salary is likely to increase but live as if the salary will be flat. Save any increases in pay. Invest wisely.
I was not able to do it immediately when I graduated and 3 year postdoc at $15,000-$25,000 per year and about 65 work hours week, but I like to eat out and didn’t have much time to cook and was too tired. After I got a regular assist. prof. at $47,000, I was able to save. Many other postdoc thought of taking waiter’s job for extra income and free food.
To put the salaries in perspective the current postdoc pay is $50,000 and assist prof $75,000. I know it’s tough to save in the Bay Area, but it’s being done.
Strongly agree.
es and others – read this NYT article on saving by white collar workers in order to buy in NYC:
http://www.nytimes.com/2007/07/29/realestate/29cov.html
Awesome levels of frugal living from a white-collar perspective. I’ve printed this article out and use it to encourage myself to continue to live frugally in order to save $$$.
If the link does not work, google these search terms and the article will come up:
Every Penny Counts article New York Times 2007
~Misstrial
es:
Most likely I will be moving out of my Cupertino TH in late May/early June.
$1700/mo for a 2/2 w/a 2-car garage w/opener.
Large patio backyard. Upstairs loft. 1041 sq ft. Newer appliances. W/D included (indoors). Satellite dish. Off the Foothill Expwy near Rancho San Antonio Open Space Preserve.
Ask IR for my email addy if you are interested.
~Misstrial
We are long time readers, first time repliers. My Wife and I bought a small condo back in January 1998 here in Los Angeles County (previously lived in Riverside County). The move was important as it allowed me to live considerably closer to my newly acquired job. We bought the condo knowing that the price was well below our income (even though our realtor encouraged us to buy something bigger). Well, I became engrossed in my new career (engineering manager) as did my Wife (now a principal at a middle school). The years rolled past and we began to question ‘How is everyone able to buy all the nice toys?’ We are the couple that Perspective is inquiring about. We are quiet, ultra-conservative and boring. We have lived so far below our means that the only remaining debt is our small mortgage balance, which we will be retiring in December 2010 (I am 47 and my Wife is 45). BTW: We do NOT have any Pergraniteel in our small humble abode. Once the mortgage is retired, we will then save to remodel our little place, humble as it is.
“…Once the mortgage is retired, we will then save to remodel our little place, humble as it is.”
I would have imagined you have saved a lot already! But then again, if you’re paying off the mortgage early (in about 12 years), you might not that much left.
We have (luckily) managed to save a lot (401k, 403b, IRAs, taxable accounts) only because we have lived so far below our means. Of course, ‘a lot’ is relative. We do need to point out that not having any debt whatsoever combined with adequate savings and investments will eventually enable us to make choices in what WE want to do. Fortunately, it looks as though our plan is going to become a reality sooner than we estimated. We were planning on seeing our long term plans happen in our early to mid-50’s. January 1, 2011 will look a whole lot different.
Send them to my email address.
In 2004-2007 my wife and I were in the top few percent of income in LA, and we couldn’t find a decent house we could afford. “there couldn’t possibly be this many rich people” we said.
We have stayed renters about 6 years longer than we wanted to. The prices in the areas we are looking at are only back to the mildly insane 2003 levels. If we stretch and put down a lot of money, we can afford to buy a house I easily lived in as a renter in the 1990s. Of course, we are likely to lose more than 30% if we buy now.
This may be one of the cruel problems of the near future. Both dropping home prices and large downpayments, wiping out savings of responsible people. I figure that if we buy now we will lose $250-400k within three years.
MalibuRenter,
That’s why the govt is allowing FHA walkway loans with 3.5% down and 1.5% loan fee. If it doesn’t work out, just stop paying and squat for 2 to 3 years. Normal expenses for mortgage, taxes and upkeep are about 7% yearly. So free rent for 2.5 years will give a ROI of 250% instead of the traditional responsible method that will lose the 20% down payment and out of the house in 5 months.
A take on the article from the LATimes Magazine
The listing agent forgot to upload this one
http://www.crackthecode.us/images/moneytoilet.jpg
Had you considered being an illustrator/artist for online news magazines? I might read more LA Times online stories if they had these kinds of pictures.
I think this might be one of your best ones yet.
You should really go back and read what you wrote today. You sound like a total Nazi… just saying.
Since you addressed your comment to me, I feel I need to respond, despite the lack of substance to respond to.
What about what I wrote struck you as Nazi-like?
Reports like this one engage people’s emotions then direct them toward some desired end as the compassionate thing to do. I don’t believe endless loan modifications and subsidies are compassionate. People may disagree on this point. Is that your issue? If so, tell me what you think is the just and compassionate resolution to their problem.
BTW, Godwin’s Law usually kicks in later in the discussion.
You’re also 12 feet tall and from Mars. To covet is to want something that belongs to someone else. Does the home in the article really belong to the people that live there, or does it belong to the bank? Wanting material things you cannot afford is not a new phenomena and I can’t imagine pointing that out can be considered immoral.
You were pretty harsh with these borrowers, but I see it as a manifestation of frustration with human beings and their bubble ways. Until you stage some kickass Nuremberg rallies, invade Poland, or just build a mechanized Wehrmacht of extraordinary magnitude, I just can’t think of you in that Hitler sort of way.
I am usually not wise in the ways of such things, but I know better than to try to warn friends and relatives during a bubble: they’re going to do what they’re going to do. And if you’re proven right, and they lose everything, you will be hated.
That said, I did have a couple of weak moments. At one restaurant meal four years ago, a friend bubbled on about the five rental properties she was purchasing with pico-downpayments. I asked her (a) if she had heard that the worst time to get into something is when it’s the topic of discussion at most social gatherings, and (b) if she could recall many recent gatherings at which nobody mentioned real estate. She wasn’t interested in my killjoy attitude.
Anyway, now she’s bankrupt. Why? Because she’s a stupid bitch. Sorry: a sheep is a sheep. Why lie, when the consequences of this foolishness fall on all of us?
That reminds me: I need to look at sending some Panzer divisions into North Africa.
I have no problem paying taxes to take care of other people – many of whom are hopelessly stupid, and not just down on their luck – but it should be a basic safety net only.
Most humans will always be poorly informed and irresponsible. This will never cease to be aggravating to those of us who stop and look at human behavior.
I am not immune. I have speculated heavily in the past using leverage. In hindsight, I would not do that again, and I now prefer dying poor to earning wealth through leverage, but it took me until middle age to learn this.
It is true that most people are ill informed and irresponsible. However, there are also those who will push the envelope as far as they are able to push it. People will always be looking for something for nothing. Ever notice how freebies can be the crappiest of crap, and people will claw and fight to get a piece of that crap? The same is true with the HELOC abusers and 100% financing on $700k houses while earning $10 per hour. Vicious cycle. Since we know that people are stupid and will do these stupid things, shouldn’t corporations (mortgage lenders) etc., take responsibility for the mess they have helped make. Also, if you were smart enough not to buy a house you could not afford or use your house as an ATM, then the goverment should give you a tax credit for not being a stupid a-hole.
Lenders will never be held accountable, unfortunately.
The only thing that can keep this from happening again is first to extraordinarily screen financial professionals. The job should only be held by people willing to go through a distasteful multi year education, ending with a deep, probative licensing process. Second – dual agency should be banned. Too many opportunities to steer the weak minded into harmful purchases. Broker A should sell, Broker B should list, period, the end. Third, there should be a 3 day right to cancel on purchase loans just as there is for a refinance transaction. Fourth and finally, if you’re working with a fully screened lender, and found a home with an Agent from one brokerage that was listed by an Agent from another brokerage, then took three days to review all of your documents AND STILL FAILED TO RECOGNIZE THIS WAS A BAD DECISION – you get nothing from the Government. Not even a Section 8 voucher for your new rental home.
My .02c
Soylent Green Is People
“I am usually not wise in the ways of such things, but I know better than to try to warn friends and relatives during a bubble: they’re going to do what they’re going to do. And if you’re proven right, and they lose everything, you will be hated.”
I believe I dissuaded about three couples from buying during the bubble, a terrible hit ratio.
However, I am not hated by all of those people I warned. I get a lot of “I should have listened to you” and “can you help me with…?”
NAZI were Germany’s socialist party. The US has been practicing socialism with a US twist. Socialize the past industrialist losses and now socialize the current bankersters losses with taxpayers dollars, but privatize the gains.
The house squatters are only asking for another piece of the pie. Too bad the renters and responsible were not invited to dinner, but not sent the bill for dinner and desert.
The modern ant and grasshopper fable told at public school is ending with the the queen liking the lazy starving grasshopper’s music, so she invites the poor grasshopper in with all his other musician grasshopper friends.
I’m not sure what is more unnerving – the fact that this person thinks the Nazi’s were a socialist party or the fact that no one has contradicted the statement.
Maybe people are too smart to respond and I’m the sucker…
Mike, thing are very easy to look up with the internet. There lots to learn from history. Who ran the SS ?
“Nazi n. , pl. , -zis . A member of the National Socialist German Workers’ Party, founded in Germany in 1919 and brought to power in 1933 under Adolf ….”
http://www.answers.com/topic/nazi
I tend to think that the future looks pretty dim for these folks. So maybe I’m looking at things from that perspective and seeing the horror that will follow. And so beating them up here won’t serve much of a purpose. I just read what you wrote and it seems to inspire a mob mentality (think of the stoning scene in Life of Brian).
So what should be done about these people? Ideally, how should society treat these people going forward? How should things change to make you feel that things will be more fair for people like you and me going forward? How should things be so that you’d feel better?
Make it a law that they should wear a helmet/elbow pads/knee pads everywhere they go and have their food pre-mushed so they do not choke on it. I also recommend adult diapers.
I would also suggest that they definetly not drive and be transported on an easy to get on bus that has a ramp that raises and lowers, so they never fall.
Also make it so they never ever ever get a loan again or be allowed to make financial decisions with anything over $10,000 in Monopoly Money.
A court ordered “financial steward” should be provided to make sure they cover every expense.
Make sure their one level apartment(they should never be allowed to own a house again, and never be allowed to live in a building with stairs) has all sharp objects removed and all sharp edges/corners smoothed. No garbage disposal in the sink. All plugs and outlets must have “adult children” proof covers to prevent shocking. Each light fixture needs to be hooked up to a clapper. Also to prevent shower accidents and tub drowning, they need to take all baths outside with a garden hose and a plastic tarp.
I think these are effective solutions to prevent them from ever incurring(or causing) any harm ever again for the rest of their lives or wasting the wealth of other people for that matter (which is really what they did).
I am open to more suggestions.
Sounds good!
Did you read the article? Two of their houses were purchased while their only source of income was social security and worker’s comp. WTF!!!!
People like these fools and millions more with the same train of thought ruined it for us normal, hard working, money saving people who just want to purchase a house to call it home and live in it. This carnage was completely self induced. Not one ounce of sympathy from me. They need to find a rental and move…the last I heard many landlords don’t care about credit scores because so many people have subpar credit today.
I know of a community in Hemet that might suit their needs. These places have 5 bedrooms, so they could lock each dog in a separate bedroom.
Though I agree with you in general – “People like these fools and millions more with the same train of thought ruined it for us normal, hard working, money saving people” is wrong. Some of us saw this coming and made a mint.
Yeah, I get mad at some of the stupidity and aftermath, but overall – thank you bubble.
FH
I made about an extra $300k off the bubble, at a time when other people’s investments were tanking. Still, I would rather have had a reasonably priced home earlier.
I like the way he writes. It is full of piss and vinegar. We need more emotional writings, and less bland PC crap. I also liked the attached photos. They are disturbing which is a good thing.
If this blog turned bland, then it would be like reading the OC register…or like living in Irvine.
“I like the way he writes. It is full of piss and vinegar. We need more emotional writings, and less bland PC crap”
Yes.
Sometimes fair reporting is not balanced. Sometimes fair means calling people whatever they might be: clueless, entitled, dishonest, opportunist, etc., as the case may be.
You guys have to read this. It thinks its a joke, but you never know with the government.
Staff will reportedly be trained to offer greetings, a certificate, and a sturdy handshake to select homeowners who continue to pay their mortgage on time. Those homeowners who have not missed a payment for the past five years will also allegedly be eligible for an “I pay my mortgage” T-shirt or a name-brand wristwatch etched with the slogan, “I pay on time.”
The 5% of people who have committed these crimes should be sent off to Housing Bubble Aushwitz.
This concetration camp would be a Irvine Compay run apartment complex. The guilty would be forced to pay $2200 per month in rent and listen to bloggers beat a dead horse for a decade complaining about government controlled housing prices.
They don’t have to be sent anywhere other than out the front door. We are a very forgiving people – we don’t even have debtor’s prisons. Once these folks have removed themselves from the house that they should never have bought they ought to kiss the ground in worship of just how good they have it here. I wonder how they would be treated in Pakistan – probably not as well as this Nazi regime we have here.
While I think your concepts are lacking insight, this is a very funny post you cooked up.
The couple in this story that was referenced today was very interesting.
My favorite part was the daily chanting to maintain their karma. I am guessing a fly on the carved teak shrine would hear something like this:
“Please make me rich”
“Please make me rich”
“Please make me rich”
She attributes their misfortune to bad karma in a previous life….
I am all for letting people have their magical thoughts but couldn’t it also be explained by other things like poor financial decisions in this life? Suppose that she were mother Theresa in a previous life. Does that entitle her to be rich in her next life? I don’t think it does…
Take special notice of how these properties were being financed with incomes back by government cheese. They try to pass the blame on to the lender because the lender “didn’t have a problem with it”. This sounds like code language for “they gave us a liar’s loan”.
So now we get the sob story of how they lost two of “their” three houses to the foreclosure God….
These people have a higher standard of living than I do and I actually work for a living. How is that fair? I am renting to save money for a downpayment but I cannot compete because people like this will just borrow every penny via the stroke of a pen that I worked years to save.
None of these people plan on retiring their debt – they just want to make payments for awhile and then flip for profit. I have no sympathy for people like this that get themselves into trouble.
Time to find these folks and their four dogs a nice pet friendly rental.
“There must be more money, there must be more money.”
“Where is the money, where is the money?”
“Borrow the money, borrow the money!”
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2010/Rocking-Horse+Winner+April+2010+IO.htm
“I am all for letting people have their magical thoughts but couldn’t it also be explained by other things like poor financial decisions in this life?”
I see so many decisions that seem risky and bizarre that some of the people making them must actually believe they are doing something appropriate. Of course, there are plenty of opportunists too.
Has anyone here seen an article where the homeowner says something like “wow, those were irresponsible times, I can’t believe we got a loan”?
Yes,
Remember that NY Times reporter and his book “Busted”? Edmund L. Andrews.
While many people took exception to his sweeping under the rug the foolishness and financial transgressions of his wife, he’s totally self-aware of how obvious the bubble should have been to him based on the insanity of the loans he got.
Such a drama queen. Renting is not dieing. I’m happy to be paying $2275 rent for a VERY nice home in Thousand Oaks. I rented a couple of lesser places in Huntington Beach too.
Happy because I’m saving my earnings for a home which becomes within my reach more so every month. My debts are paid off.
Finally a college grad who worked his way through engineering school and works for the defense industry for the last 20 years can get back into affordable mortgage not based on speculation, but on his ability to pay.
I missed the gold rush when my first house went to the first wife after paying it off for 15 years.
Newsflash, a $530k house is rental parity for you.
And when interest rates go up and he needs to move?
Rent for a while longer and buy when the gov has run through the whole 9 yards.
That’s no news to me. Flash on this:
I left HB because I lost my job. It was easy because I was renting; no worries about losing the umpteen thousand because I got into a loan into a declining market where renters are hard to find. I was very lucky to find a better job, but I had to move away –and FAST too.
So you buy this $530k then, since you think it’s such a great deal. –Like I said, I’m happy and comfortable saving, waiting, renting, paying for every single month I stay now every where I’ve been. I’m a free man. I owe nothing. I save much.
Tomorrow you might think that house will be worth $550k. And maybe all the unemployment, lack of federal supports on prices and vast inventories of foreclosures will not change that.
You have my story, what’s yours?
I don’t have any debt, I own everything in my life. I have worked very hard to achieve this.
The entitlement problem is much larger than IR presents.
It includes everyone with any kind of debt.
People with large student loans feel entitled to a high paying job.
People with large car loans feel entitled to luxury cars.
People with ANY credit card debt feel entitled to life luxuries.
Etc etc etc, limiting this to housing is the mistake.
When why are you encouraging him to take on debt buying a $530k rental parity house?
and so with all your hard work to back you up, and your financial accomplishments you advise me to buy now.
That really makes me think … maybe you will start your own blog and advise other wretches like me to buy a house.
So seem to think after studying the market every day for many years that I am misinformed.
So how many “great deal” houses are you buying now with all your money?
I’m not encouraging him. I’m making a point about the current market. We are at rental parity, and the government needs prices to stay elevated for the banks and for tax revenue. For reference please see the new 10000 California tax credit. Government manipulation is not going away, why keep beating a dead horse. That’s all for me, peace.
I don’t think P.R was really telling you to buy. He just likes to say “rental parity” in each observation to get IrvineRenter’s goat.
You may be right that the government needs or wants to keep prices elevated. No one and I repeat no one knows if they will be successful at this. That is the million dollar question that no one has an answer to. If there was a 100% certainty that prices would stay elevated, everybody on the fence would buy. I think you have too much faith in government meddling.
The 10k CA tax credit is just another misguided attempt to delay the inevitable. California is beyond broke…why are they digging the hole even deeper for themselves?
Also, can you answer the question about being a realtor or homeowner. Just curious…
I suppose it’s rental parity if you think nothing of his 20% down payment. Sure at 5% he would achieve rental parity on a 530k home but he has to “waste” his $106,000 deposit. Not to mention taxes, possible HOA’s, insurance, etc. I still think he’s better off renting.
“We are at rental parity, and the government needs prices to stay elevated for the banks and for tax revenue.”
Been to Malibu lately? Not there yet.
$530K in Thousand Oaks? Yikes. Stupid is as stupid does I guess.
Dude, Thousand Oaks is an expensive place to live. Even higher rents than Huntington Beach IMHO.
I have a hard time understanding it, but it is what it is. And fortunately I’m not commuting.
I rent one of the nicer houses in an iffy neighborhood.
Thousand Oaks is the Irvine of Ventura County. It’s a nice area; that’s for sure.
Eat that!
There are no decent $530,000 SFR’s in the entire 91360, 91361 and 91362 zip codes. There are some beaters that require around $100,000 to make them livable, or some that back-up to the 23 Freeway or major 4-lane streets.
In fact, as of today, there are only 20 SFR’s with at least 1,500 square feet listed on the MLS at less than $500,000 in those zip codes. Those zip’s cover approximately 45,000 homes.
Thousand Oaks is as bad as OC as far as overpriced housing.
I think $300k or so is the rent/purchase cut off. That is, if you can buy a house for $300k, buying is (probably) better than renting. If you need to pay more, renting is (probably) better than owning. In the Inland Empire (priced below that), only people without the ability to get a 3.5% FHA down payment, those planning to stick around for only a couple years, or those who have bad credit should rent at this point. Everybody else should buy, IMHO, since monthly rents are significantly more than total monthly costs for owning (including things like taxes and insurance).
The opposite is true for more expensive areas like Thousand Oaks or Irvine. Owning is probably a bad idea finanically unless you plan on sticking around forever (10 years plus)-even then, it’s probably questionable. Of course, there are non-financial reasons to own.
Have any of you ever tried to commute from Thousand Oaks to LA (you’d have to unless you work at Amgen)? It’s idiotic. The way I see it, we are going to shocked at how much people paid, when wages are stagnate and interest rates back up at 6-8%. Shocked I tell you.
Coming up on the 10 o’clock newscast: A $530,000 home – is it soon to be a $470,000 home, or a $400,000 home?
Well, look at it this way:
Feb 18, 2010 Price Changed $720,000 — SoCalMLS #S596056
Feb 12, 2010 Relisted — — SoCalMLS #S596056
Nov 17, 2009 Price Changed $710,000 — SoCalMLS #S596056
Nov 13, 2009 Listed $649,900 — SoCalMLS #S596056
Now they’re chasing the market *up* 🙂
Boy, with April 1st upon us, it’s very hard to tell if this is a joke or not. I will say that I’ve run into many, many, MANY people who fit this profile. They are the permanent victim class who should not be sympathized with. They have gamed the system to their benefit on the way up, and cry foul all the way down. I’m surprised given their hard luck tale they haven’t been hit by lightning twice, indoors, on February 29th. Anyone willing to take the time and effort to research their misfortunes will likely find the majority of it has been self inflicted. Certainly their accumulated Real Estate empire is an indication of how self induced their immolation is. In closing, a friendly protip: If your out of money, eat your dogs.
My .02c
Soylent Green Is People
I had dog in china once…it was not fatty at all. Didn’t really taste any different then other meats like beef.
Hi IrvineRenter,
I’ve been reading regularly, but have not had the time to actually post anything due to work. Despite this, I thought I should post today anyways. I know that a lot of renters (myself included) have sat out for the last two years looking at the housing market and the bailouts and wondering if it wasn’t better to go all in and enjoy the beautiful house instead of still waiting on the sidelines for the really affordable and attractive price?
I know that my sanity is mostly due to having a wonderful wife who supports the situation and looks at it from a realistic perspective. The time we have spent not living above our means has allowed us to still raise a kid (in an apartment no less) that is doing well and is happy all the time. We have much higher money outlays now that he is with us, but our joy is always apparent and, believe it or not, our net worth has grown in the last two years.
I can’t speak for you, but from my perspective my family, my health, and my net worth are much more important to me than the house I live in, how much I could have gamed the system, or what others think of me. Hopefully you’ll find a deeper and more meaningful intrinsic morality system for yourself that will help ease the pangs of regret. If you don’t, I think a healthy dose of schadenfreude does wonders to purge the primal urges to jump on the debt-bingers bandwagons. I don’t want to have to read about you in one of these latimes articles now do I?
Dejnov.
I have no regrets. I live my life by my own standards (mostly), and although I find HELOC abuse and entitlement thinking annoying, I have no desire to travel that path. The pain and suffering at the destination are clearly not worth it.
Hi IrvineRenter,
I am a long time reader and as of today, a first time replier. I simply HAD to respond to your question: “Is frugality and self-restraint dead?” I am happy to report with an emphatic “NO, it is not dead. It is alive and well!” Granted, my Wife and I are probably not the norm, but we (in our humble opinion) are frugal and do in fact practice self-restraint. We bought in January 1998 and we live in a small condo – the price at the time of purchase relative to our income was ‘very affordable.’ We have been very fortunate that our income since 1998 has steadily increased and we have been busy paying down the debt. And NO, we did not take out any HELOCs nor have we re-financed the original loan, using our condo as a money-making machine. Finally, our humble abode does NOT have any pergraniteel (‘quaint’ is the proper term). Recall the bumper sticker “It’s ugly but its paid for”? This describes our home. In fact it does need to be seriously renovated. We refuse to do this until we retire the only remaining debt in our lives (by Dec. 2010). Then, and only then will we save real money via earned income and then spend some (not all) of those dollars to renovate the place. Because we have lived so far below our means we have been steadily saving and investing in tax-deferred, tax-free and taxable accounts, car fund, emergency fund, etc. Just wanted to provide feedback that frugality and self-restraint is alive and well. We are probably a humble and modest lot, which is maybe why you don’t hear much from us.
Hootie
Hootie,
I really appreciate your story. IMO, you are living the American Dream. Thanks for sharing.
IrvineRenter
Don’t worry, we’ll tax the cr*p out of you someway or another to pay for all the criminals..er..victims of the housing clamity that no one (cough) saw coming.
Everyone should game the system so it collapses faster…it’s been taking way too long.
This is unrelated to RE, but touches on your “gaming the system” thing and the gov’t making debt a positive.
I’m at a private pharmacy school right now (USC if you’re curious) and I’m taking loans out to pay for EVERYTHING (tuition, rent, etc…)
The gov’t, in 2007, set up a program where I would pay ~10% of my income each year (max) for 10 years and the rest is forgiven as long as I work for a non-profit (lots of hospitals are, and in pharmacy, income between private vs. public is the same).
So I have a choice — work hard, borrow little, live off ramen, and live the life of frugality or poverty? OR do i max out my loans, live it up, and enjoy?
I did the calculations (omitted for brevity)…someone borrowing $100k for school vs. $200k pays EXACTLY THE SAME TOTAL AMOUNT 10 years after graduation (given both work at the same place). In short, the $200k “live it up” borrower gets to dump his/her loan balance on to the federal gov’t after 10yrs, while the $100k frugal guy pays the whole balance.
I’m not a fool, I’m the $200k borrower, I picked what’s best for me. Crazy world, eh? (i can give more detail later if anyone wants to hear it).
You are a hero, thank you for gaming the system. We need everyone to do this.
granted i’m not exactly buying pergraniteel or jetting off to europe, it means i’ll substitute ramen and frozen pizzas for actual food and i’ll properly maintain my late model honda instead of praying each time i turn the keys.
and it’ll mean i can work less and focus on school.
so i’m guilted but not at the same time…makes sense?
Taxpayers (and especially voters) allowed you to do this. Good for you.
Same goes for all the gamers back in the bubble days (as well as the current govt induced bubble).
CA,
Read the fine print. Student loan forgiveness applies to non-profit and income below a certain dollar amount. That amount is near poverty level.
POP !
Incorrect, I’ve read the fine print…it’s not a set dollar amount, it’s how much debt you have relative to income. The law was written with doctors, lawyers, and other high earners in mind where there exists a huge disparity between public and private.
It’s technically the combination between IBR and PSLF that results in payments capped at ~10% of income and forgiveness after 10 years of the remainder.
Trust me, I’ve read this thing inside and out, there is no cut-off like a tax credit/deduction.
CA,
Do you have a website or address of such programs. I looking for education loan for my kids. All the kids will likely be going later to graduate or professional schools, so I better start planning now.
The loan forgiveness that I found has formula that had salary and the amount or % of that year’s student loan that could be forgiven. One had that if you left before the full 10 years that none would be forgiven (a some or nothing program).
Thanks,
i’ve looked at many, but this is the most succinct one:
http://www.ibrinfo.org/
yes, the 10 year thing is all or nothing. if you work 9 years 11 months in a non-profit or government, you don’t get anything forgiven.
the law was designed for professions like…law, where you can make six figures in corporate but $40k as an assistant DA with the same amount of debt.
Thanks CA,
Very interesting in light that many middle to senior Govt and non-profits pay scales are better than private sector jobs. The starting salaries are usually lower but their excellent training ground. The VA is a great place to start.
Crazy but I believe it. Though, I do not blame you but this is one of the moral hazard stories that IR writes about. Basically, this legislation encourages inefficiency.
————————–
California’s new home buyer’s incentives, why can’t buying a home stand on its own merit anymore? This is another legislation that encourages inefficiency.
Yeah, why can’t we have a “buy a friend a drink incentive” or “visit a location adult entertainment establishment incentive” etc. etc. think of the stimulus!
nudy bar stimulus is something i can completely get behind.
The crisis will never end as long as the lame-stream media continues in it’s non-reportage. The article is a travesty. I wouldn’t wipe my dog’s butt with the L.A. Times. If I had a dog.
When the dike breaks it will be breathtaking.
IR and others,
Has anyone out there had experience with STRS loans? These are loans for teachers. Currently they have a program called 80/17 where all you put down is 3% then pay on 80% of the loan and defer 17% for 5 years.
I have enough to put 20% or more on a home but sometimes I think I missed the boat by putting 0% down and when the payments go up be a squatter and live rent free for a year or more.
I have no intention of defaulting on a loan but seems to me an 80/17 would be like an insurance policy. If home prices tanked then after 5 years when I had to start paying on the second I could walk. In the meantime I still would have enough cash to go and get another place. Maybe some of these people that went with 0% down in the long run are better off than us responsible people who have had our tax dollars go to this mess.
“Perhaps it is better to game the system like everyone else? I would have enjoyed living in a nicer place rent-free for the last couple of years.”
Maybe you can figure out a way to sell the rights to live somewhere rent free while in default.
MalibuRenter,
Look at last Saturday’s NPB squatter. Takes out millions in equity, stops paying for at least a year and is now trying to lease and/or give the appearance of trying to sell the place.
Nice place in NPB, but I would not trust the landlord. House gaming brought to a new level. But you can’t pick on a single mother.
:{ Stuck with another bankster bill.
The die is set for putting down the least amount of money possible. Too bad I didn’t get a 1 million dollar house with no money down loan. Free rent.
This mess will go on for a long time. So many people have stopped paying their mortgages and will just live rent free. Makes me almost think that I should just jump on the bandwagon to.
I want to read a story about the hard-working professional couple who refused to purchase in the early 2000s because they didn’t have 20% saved yet, only to watch prices get further and further out-of-reach.